Review - The Concept of Equilibrium

8/9/2019 Review - The Concept of Equilibrium

1/8

405

BOOKREVIEW

THECONCEPTOFEQUILIBRIUMINDIFFERENTECONOMICTRADITIONS: AHISTORICALINVESTIGATION

BERTTIEBENCHELTENHAM, UK: EDWARDELGAR, 2012, 682 PP.

JINGJINGWANG

In The Concept of Equilibrium in Dierent Economic Traditions, BertTieben oers a full-length, extensive study of the concept of equi-

librium that chronicles its four-century evolution from the prehistoryof classical economics to the heyday of neoclassical economics andcontemporary heterodox economics. The book, a daunting explo-ration of mountains of literature that runs in nearly seven hundredpages, is based on Tiebens 2009 dissertation at the Vrije Universiteitof Amsterdam. Although there are few advanced mathematicalequations that might bae the reader, the book is not easy to readand presupposes a detailed knowledge of economic theory.

Jingjing Wang ([email protected]) is a Ph.D. student at the Universityf Missuri.

Vol. 17 | No.3 | 405412

FAll 20 14

The

QUARTERLY

JOURNALf

AUSTRIAN

ECONOMICS


2/8

406 The Quartery Jurna f Austrian Ecnmics 17, N. 3 (2014)

The bk is divided int fur parts: a theretica framewrk(chapters ne and tw), research methdgy (chapter three),histrica review (chapters fur t tweve), and cmparisn andsummary (chapters thirteen t seventeen). In these seventeenchapters, Tieben mainy addresses three reated issues: themeaning f ecnmic equiibrium, the reasn fr its persistenceand dminance in ecnmic anaysis, and its re in cntrversiesamng varius schs f ecnmic thught (pp. 11, 612). Afterbriey summarizing the bks main cntents, I wi cmment n

the authrs interpretatins f Austrian ecnmics.Chapters ne and tw mainy expre the meaning f ecnmic

equiibrium and prpse an anaytica framewrk fr the restf the bk. T avid becming trapped in semantics, as FritzMachups review f equiibrium cncepts, Tieben crrecty pintsut that in studying the histrica devepment f the equiibriumcncept, ne shud g beynd denitins. Even s, ne must startwith a denitin, and he impicity adpts a Hayekian equiibriumcnceptthe mutua cmpatibiity f individuas dierent pansfr actinas a benchmark. He argues that pan cmpatibiity rpan crdinatin is rughy cnsistent with viewing equiibriumas a metaphr, ike the invisibe hand, t expain ecnmic rder,harmny, r decentraized crdinatin (pp. 12, 36, 612). Mrever,he prvides an anaytica framewrk that distinguishes betweenstatic and dynamic cncepts f equiibrium, that is, equiibrium asan end state r a prcess. Schars chse ne r the ther basedn their distinctive idegies (what Tieben cas visins), simiary

t what Jseph Schumpeter described as scientists subjectiveevauatin befre beginning a scientic inquiry (p. 36). Thus,Tieben cncudes that it is impssibe t give vaue-free scienticstatements (p. 46).

Chapter three discusses the methdgy reated t the main-stream, necassica equiibrium cncept. Tieben asks whether thecncepts dminance and persistence stem frm its vaidity as ascientic t fr expaining ecnmic phenmena (p. 612). Hisanswer ceary is n. He examines the scientic criteria adpted

by Deirdre McCskey (rhetric), Ry Weintraub (the lakatsianmethdgy f scientic research prgrams [MSRP]), AexanderRsenberg (instrumentaist) and Danie Hausman (the aws fecnmics) ne by ne, athugh he des nt expain why he


3/8

407Book Review: The Concept of Equilibrium in Dierent Economic Traditions

chses these schars. Tieben argey agrees with McCskeysrhetrica view f ecnmics and her pinin that mathematicaequiibrium thery nt ny eads t an errneus histry fecnmic thught (p. 49), but inapprpriatey purprts t be thescientic standard. As fr Weintraubs Ne-Warasian ResearchPrgram (NWP), Tieben cmpares it t lakatss MSRP andcncudes that it fais t incrprate the requirements f havingbth a theretica hard cre (p. 55) and a prtective bet (p. 57)f surprising empirica resuts. Next, accrding t Rsenberg, the

criterin f science is predictive success. He argued that ecnmicsis at best a branch f mathematica pitics rather than an empiricascience. Hwever, Tieben pints ut, Rsenbergs view is ntcnvincing because he never assessed any empirica inquiries indetai. Finay, Hausman cnsidered ecnmics as a science basedn seven fundamenta aws r assumptins f ecnmics (p. 75).Yet, Tieben nted that nt a ecnmists fwindeed, smeecnmists even empy the ppsite assumptins. one cnjectureis that the ppuarity f the idea f genera equiibrium may stem

frm chance cnsidering that Wiiam Jevns and ln Waras didnt did nt btain immediate r freseeabe success in their time(p. 29394).

Since, as Tieben sees it, n bjective scientic standard canexpain the status qu dminance f the necassica cncept, heturns t the histry f ecnmic thught in chapters fur thrughtweve. Tieben reviews hw the funders f and cntributrs tprecassica, cassica, necassica, and heterdx ecnmics, espe-

ciay Austrian ecnmics, empyed the equiibrium cncept.Chapters fur thrugh seven appy the anaytica framewrk

prpsed in chapter 2. Fr each traditin r perid, Tieben iden-ties representatives f the end state and prcess appraches tequiibrium anaysis. Fr precassica ecnmists, the distinctinbetween end state and prcess ies in dierent aspects f a sef-reguating ecnmy: the stabiity f this rder r the disruptinsaway frm equiibrium (p. 9697). The precassica ecnmists SirDudey Nrth and Pierre de Bisguibert, respectivey, pineered

these appraches (p. 97). Next, Tieben maintains that RichardCantin, wh emphasized the equiibrating re f entrepreneur,fwed Nrth. He as asserts that Franis Quesnay and thePhysicrats (except A.R.J. Turgt) fwed Bisguibert instead f


4/8


Cantin by fcusing n an unstabe prcess f capita reprductinand ecnmic decine.1 Dierences f views abut equiibriumcntinued and grew amng the cassica ecnmists. Becausetheir wrks are s cmprehensive (r incnsistent) and mderninterpretatins as varied, it is hard t identify denitivey theseauthrs predecessrs. Hwever ne interprets their wrks andthe rigins f their wrks, thugh, the cassica ecnmists wereengaged in the tw branches f equiibrium studies, which were ttransfrm greaty in the necassica perid.

In cntrast t the earier chapters, chapters 8 thrugh 12 dnt cntrast tw schars wh tk ppsite psitins, but nyunderine the dminant aspectend state r prcessf specictraditins. Chapter 8 and 9 discuss Jevns n partia equiibriumand Waras n genera equiibrium.2Their necassica ecnmicstransfrmed the equiibrium paradigm by cncentrating ny nthe characteristics f static equiibrium. Chapter 10 investigatesthe cntributins f Austrian ecnmics as a type f heterdx

ecnmics that fcuses n disequiibrium anaysis. It is audabethat Tieben des nt dismiss Austrian ecnmics, as mst main-stream ecnmists d, but sme f his arguments are dubtfu, as Idiscuss bew. Finay, chapter 11 fcuses n J. M. Keyness cntri-butins t mnetary equiibrium. And chapter 12 is n mnetarydynamics by studying Stckhm and Austrian schs, whicharrived at ppsite cncusins n whether pubic picy shudaim t achieve mnetary equiibrium athugh their starting pintsare simiar (p. 467).

The remaining chapters investigate disequiibrium studies, suchas in Keynesian macrecnmics, Kirznerian entrepreneurshipthery, and evutinary and institutina ecnmics. In thecncuding sectin, the writer insightfuy pints ut that the equi-ibrium cncept is indispensabe in disequiibrium studies: Whatbetter way t study this wrd than by freezing it fr a secnd(p. 615). Hwever, he fais t identify the vaue f freezing, as

1For Boisguilbert and the Physiocrats, economic decline is a synonym to disequilibrium.

2As cfunders f margina revutin, nt ny d Jevns and Waras signicantydier frm Menger, but as huge dierences exist between Jevns and Waras(p. 270).


5/8


an imaginary cnstructin3

in, rather than the ga f, ecnmicanaysis. In arguing that nn-Warasian thery is mre visinarybut achieves ess satisfactry resuts than necassica thery,Tieben impicity and incrrecty assumes a trade betweenthe fruits f mathematica frmaism and idegica visin. Indescribing Austrians as artists (p. 614), fr exampe, he deprecatestheir anaytica insight.

I turn nw t Tiebens remarks n Austrian ecnmics. Aftersubty distinguishing subjective vaue frm margina utiity,

Tieben asserts that the prper name f the revutin shudbe the subjective revutin (p. 299) instead f the marginarevutin. But whie it is true that Car Menger did nt use theterm margina utiity, his thery f vaue reected its meaningprecisey. Tieben crrecty ntices that Menger dened the vaue fa given quantity f gd as the satisfactin f east imprtance(p. 311). Hwever, Tieben fais t see that it expressed the essencef margina utiity exacty. one pssibe reasn is the ambiguityf the cncept: whereas margina utiity in Austrian ecnmicsmeans the vaues individuas attach t margina units f discretegds, mainstream ecnmics discusses bundes f gds insteadf particuar gds (Kein 2007). Saern (1999) perceptivey sawthat Menger recnstructed the thery f price based n marginautiity instead f subjective vaue.

Tiebens secnd errr is in his repeated caim that disequiibriumis at the heart f the Austrian traditin, whie price is f secndaryimprtance (pp. 303, 310). This negects Keins (2008) argument

that the study f equiibrium may nt be imprtant t Austrianecnmics. The essence f Austrian ecnmics is nt the marketprcess, but rather price thery and its appicatins. Prices are theend resuts f the prcess f exchange, incidenta manifestatinsf ecnmic activities, and symptms f an ecnmic equiibrium(Menger, 2007). ony thrugh understanding price frmatin canwe understand specic ecnmic events and hw prductin,exchange, and cnsumptin are cnducted t satisfy pepesdiverse wants (Schumpeter 1951; Saern 1997).

3Cantin pineered the methd f imaginary cnstructin (p. 133). one famusimaginary cnstructin is eveny rtating ecnmy (ERE), which is empyed byMises (1949) in rder t study the re f entrepreneurship and human actin.


6/8


Third, Tieben is mistaken t argue that the Kirznerian entrepre-neuria prcess is gverned by uncertainty in the Knightian sense(p. 523). Kirzner (1963) fwed the Misesian traditin that denesentrepreneurship in terms f uncertainty and uncertainty in termsf ignrance. But Kirznerian ignrance is much narrwer thanKnightian uncertainty. As High (1982) expained, Kirzner impicityreied n a distinctin between ignrance that causes uncertainty andignrance that des nt. Kirzner caed the atter sheer ignrance:it refers t a situatin in which a persn is unaware f smethings

existence, which in turn reates t reaized facts. Ignrance that descause uncertaintyKnightian uncertaintyby cntrast, refers ta situatin in which ne des nt knw bth the prbabiity anddistributin f an instance because it impssibe t frm a cass finstances appied t future circumstances (Knight, 1921). This maybe ne reasn Kirzner is, as Tieben writes, n the brink f beingabeed a hard cre necassica by his wn brethren (p. 521).

Tieben makes sme minr errrs. He pints ut Mengers dubtsabut the use f mathematics (p. 305); hwever, as Hayek (1976)shwed, Menger des nt even refer t the mathematica methdin any f his writings n methdgy. Tieben argues that Misessbeief in the cnuence f a marginaist currents was wrng(p. 349), simpy by quting Misess statement abut the simiarityamng the Austrian, Ang-American, and lausanne schs (p.346), whie ignring its cntext. As Saern (2009) pinted ut,Misess remarks were intended as a generic defense f thereticaresearch in ecnmics, and Misess pinin was deivered at

an ecnmics cnference in Germany that was heaviy attendedby the sti inuentia remnants f the German Histrica Schwh were antagnistic t ecnmic thery (p. xxviiixxix). Insum, Tieben misunderstands the nature and certain cntributinsf Austrian ecnmics, which may be a resut frm inapprpriatecitatins and verreiance n ne r tw schars anayses.

This bk incudes many interesting cmments and anecdtes,athugh sme f these are presented withut detaied evidence. Frinstance, Waras hed t a scientic sciaist visin (p. 266) and was

nt rigina in inventing the equimargina principe (p. 274275);Kar Menger rescued genera equiibrium anaysis frm bivin(p. 294); Marsha never cnsidered ecnmics as a mathematicascience (p. 201); and the sciaist cacuatin debate made Hayek


7/8


and Mises aware f the essence f Austrian thught (p. 349). As,Tieben makes many interesting remarks n the pririty f academicdiscveries, such as that the rst ideas cncerning ecnmic equi-ibrium came frm the ancient Greeks, Aristte was the rst trecgnize that traders have a reciprca benet frm exchange,James Steuart was the rst t use the wrd equiibrium, andMarsha was the rst t reaize the usefuness f equiibriumthery in studying cmpex ecnmic phenmena.

It is inteectuay chaenging fr mst narrwy speciaized

Ph.D. students in ecnmics t set n a march thrugh ahistry f ecnmic thught. In this regard, Tieben has dne agd jb. Given the cmprehensive range f tpics cvered, itis inevitabe that the authr reies n many secndary surcesand draws sme quick cncusins. Yet, the bk might havebeen mre penetrating if he had discussed hw the scia recnmic cntexts inuenced n ecnmists understanding fthe equiibrium cncept, as Hseitz (1951) did in dcumentingthe evutin f entrepreneurship denitins.

on the whe, I recmmend this bk. This bk may sharpenmainstream ecnmists understanding f the nature f ecnmics.Austrian ecnmists may read the chapters n the Austrian sch,Austrian mnetary ecnmics, and Kirznerian entrepreneurshipthery with mixed feeings. It is inspiratina t earn that theAustrian sch attracts mre and mre attentin, whie it is a pityt knw sme detais and even sme imprtant Austrian cnceptsare nt crrecty understd. Hwever, reading this bk sti

heps in the sense that Austrians can get a genera idea f hwAustrian ecnmics is understd by ther schars such as Tiebenand be induced t prvide mre cear and precise expanatins.Mrever, it may expse readers t sme questins they may havenever cnsidered befre. A na bit f practica advice fr readingsuch a thick bk: it may be gd t read rst the discussin fMarshaian and Warasian equiibrium, as it is ikey t be areadyfamiiar, and then t g back t the ther chapters.

REFERENCES

High, Jack. 1982. Aertness and Judgment: Cmment n Kirzner, InIsrae M. Kirzner, ed.,Method, Process, and Austrian Economics: Essays


8/8


in Honor of Ludwig von Mises(Chapter 13). lexingtn, Mass.; Trnt:lexingtn Bks.

Hseitz, Bert F. 1951. The Eary Histry f Entrepreneuria Thery,Explorations in Entrepreneurial History3: 193220.

Kirzner, Israe M. 1973. Competition and Entrepreneurship. Chicag:University f Chicag Press.

Kein, Peter G. 2007. Intrductin t Principles of Economicsby Car Menger.Auburn, Aa.: ludwig vn Mises Institute.

. 2008. The Mundane Ecnmics f the Austrian Sch, QuarterlyJournal of Austrian Economics11, ns. 3, 4: 165187.

Menger, Car. 1871. Principles of Economics. Auburn, Aa.: ludwig vnMises Institute, 2007.

Saern, Jseph T. 1999. Car Menger: The Funding f the AustrianSch. In Randa G. Hcmbe, ed., Fifteen Great Austrian Economists.Auburn, Aa.: ludwig vn Mises Institute.

. 2008. The Entrepreneur: Rea and Imagined, Quarterly Journal ofAustrian Economics11, ns. 3, 4: 188207.

. 2009. Intrductin tMan, Economy, and State with Power and Marketby Murray Rthbard, Schars Editin. Auburn, Aa.: ludwig vnMises Institute.

Schumpeter, Jseph A. 1951. Ten Great Economists: From Marx to Keynes.New Yrk: oxfrd University Press.

Tieben, Bert. 2012. The Concept of Equilibrium in Dierent Economic Traditions:A Historical Investigation. Chetenham, UK: Edward Egar.

Documents

Review - The Concept of Equilibrium